In previous guidance, the IRS described how to determine the affordability of an employer’s offer of eligible employer-sponsored coverage if an employer also makes available an out-out payment. In so doing, the IRS determined that it was generally appropriate to treat an opt-out payment that is made available under an unconditional opt-out arrangement in the same manner as a salary reduction contribution for purposes of determining an employee’s required contribution. Although the proposed regulations make no change to this approach, the proposed regulations clarify that conditional opt-out payments are not counted as part of an employee contribution, if the employer requires proof that the employee and his tax dependents have minimum essential group coverage.

In addition, the proposed regulations clarify that for purposes of Code Sec. 36B, an individual is consideredeligible for coverage under an eligible employer-sponsored plan only if that plan provides minimum essential coverage. An individual enrolled in or offered a plan consisting solely of excepted benefits is not denied the Code Sec. 36B credit by virtue of that excepted benefits offer or coverage.

The proposed regulations also address benchmark plans and when advance payments of the Code Sec. 36B credit are discontinued due to an enrollee obtaining other minimum essential coverage. The proposed regulations clarify the definition of second-lowest cost silver plan (SLCSP), which is the benchmark plan generally used to determine premium tax credits. In addition, the proposed regulations treat the Nonappropriated Fund Health Benefits Program of the U.S. Department of Defense as an employer-sponsored plan for purposes of determining if an individual is eligible for minimum essential coverage under Code Sec. 36B.

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Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Vernoia, Enterline + Brewer would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
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